Consider a small open economy that takes the world real interest rate as given. Suppose the world real interest rate is less than the country’s autarky real interest rate. Which of the following is TRUE?  Domestic saving exceeds domestic investment   There is capital outflow   There is excess demand for capital   None of the other options

Consider a small open economy that takes the world real interest rate as given. Suppose that initially the world real interest rate is less than the country’s autarky real interest rate. Now suppose there is a change in tax policy that leads to an increase in domestic saving supply. Which of the following is TRUE?Group of answer choicesThe economy may flip from importing capital to exporting capitalThere is an increase in the quantity of domestic investmentThere is an increase in the real interest rate paid to domestic saversNone of the other options

Consider a small open economy that does not permit international borrowing or lending. The country’s autarky real interest rate is greater than the world real interest rate. Suppose the country removes its capital controls. Which of the following is TRUE?Group of answer choicesThere is an excess demand for capital in the domestic economy and capital flows inThere is an excess demand for capital in the domestic economy and capital flows outThere is an excess supply of capital in the domestic economy and capital flows inThere is an excess supply of capital in the domestic economy and capital flows out

In an open economy with a given level of real interest rates and risk, a decrease in real interest rates abroad will _____ capital inflows and _____ the equilibrium domestic real interest rate.Group of answer choicesincrease; increasedecrease; increaseincrease; not changeincrease; decrease

What impact will the increase in investment demand have on the real interest rate of the small open economy? Briefly explain your answer. (2 marks)

In the classical model of a small open economy, the domestic interest rate (r) is equivalent to the world interest rate (r*), where the r* is exogenous for the small open economy. Which assumption(s) implies the exogeneity of the r*?